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Health Works Collective > Business > Finance > Bigger Health System, More Room to Tinker?
BusinessFinanceHospital Administration

Bigger Health System, More Room to Tinker?

Deanna Pogorelc
Last updated: January 10, 2014 9:00 am
Deanna Pogorelc
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First published on MedCityNews.com. The biggest of the big hospitals are getting even bigger. And, according to early analyses of the ongoing wave hospital consolidation, they’re giving way to more accountable care organizations and producing improved outcomes, but at higher prices.

One question that hasn’t been explored quite as much is: what does this mean for innovation? Hospital administrators and care providers are central to identifying problems and inefficiencies within the organization, and figuring out the best ways to solve them.

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On the surface it seems that having fewer competitors and more negotiating power over insurers would make growing health systems less likely to innovate to try new processes, products and services, or come up with new solutions of their own. And, as HealthLeaders-InterStudy market analyst Sarah Wilson wrote in a white paper on consolidation, larger health systems tend to give less control to individual physicians and concentrate decision-making power among fewer individuals.
But, Wilson said in an interview, that doesn’t necessarily make them less innovative.
Risk-takers and innovators by nature

“What we’re seeing is that consolidation generally makes organizations more inclined to take on risk, whether it be financial risk or large technology investments like new EHRs,” she said.

In many instances, smaller hospitals look to partnerships or acquisitions for more financial stability, for access to more resources and to be able to better meet the needs of their communities — essentially, to survive in the post-Affordable Care Act world. Likewise, bigger systems look to smaller ones to spread their reach and expand their service offerings.

Those market forces driving M&A also warrant actual integration within the guts of the facilities involved, rather than one health system just adding another hospital to its balance sheet, said Dr. Mitch Morris, a former senior vice president at MD Anderson Cancer Center who now leads Deloitte’s national healthcare practice. Thus, the organizations that are ahead of the curve with consolidation are oftentimes ahead of the curve with strategy, too.

“The hospital systems that are getting bigger, they not only have the interest in innovating but they also have the money,” he said. “They’re able to create investment funds where they seek out new business models to healthcare. Those that are doing that tend to be pretty innovative and tend to be willing to take on some risk.”

For example, HCA, the nation’s largest for-profit health system which bought three Tampa Bay hospitals this year, makes venture capital investments through its Health Insight Capital subsidiary. Mobile health company AirStrip Technologies and health IT firm InVivoLink have both been on the receiving end of that fund.

Cleveland Clinic, a nonprofit that made a few purchases last year, has a commercialization arm that’s spun off more than 60 startups with technology developed by its employees. Meanwhile, it’s gotten creative on the strategy side too, forming an innovation alliance through which it collaborates with and offers its tech transfer know-how to seven other institutions, bringing in additional revenue in the process.

A bigger testing ground

Aside from seeding new technologies and exploring new business models, larger health systems also have the benefit of learning from mistakes in one part of the organization, Wilson pointed out. “They’re able to roll out their new technologies and new practices in stages as opposed to all at one time, which is maybe something you see with smaller systems,” she said.

That’s one thing that’s been helpful for Kaiser Permanente, a frequent recipient of accolades for clinical quality and safety. While Kaiser hasn’t been active on the M&A front recently, the group operates 38 hospitals and more than 600 outpatient facilities, so it knows a thing or two about innovating in a big shop.

Vice President of Innovation Technology Faye Sahai said the group has an extensive innovation infrastructure that includes a venture fund, a research division, an external learning network and an innovation consultancy that works with care teams to address their challenges. It also has the Garfield Innovation Center – a simulation environment that functions as a sandbox to test new ideas. Sahai said Kaiser will also consider working with portfolio companies of the venture fund on pilot projects, when it makes sense for both parties.

Sahai said Kaiser has deliberately built an innovation community to make sure there are experimentation and creative thinking throughout all of Kaiser’s properties. “We have a designated innovation hunter in each business line and in each geography – they’re our ambassadors,” she said. Once a year, Kaiser holds an innovation retreat that brings executives, staff and “external provocateurs” to showcase their work, share ideas and be recognized.

“For most employees, we’re asking them to innovate on top of their current job, so that recognition part and learning and spreading ideas is critical,” Sahai said.

Collaboration

Not all of the big guys have those kinds of resources, though, which is why more joint ventures and alliances have emerged too. Bon Secours Health System in Maryland and California’s St. Joseph Health, which formed an affiliation with Hoag Health Network this year, are both stakeholders in a new for-profit company called The Innovation Institute. It was created to incubate inventions from its member systems’ staffs, invest in emerging businesses and hold a portfolio of companies that provide shared services to the systems.

Analysts and hospital executives expect that collaborations and consolidation will continue as pay-for-performance and care coordinate bleed deeper into the healthcare system. Although there’s still the very real concern that these transactions drive up prices for consumers, Morris said there’s some good news.

Deloitte conducted an analysis of hospitals that were acquired in 2007 and 2008 and found that, over several years, the acquired hospitals had increased patient volumes and improved margins, compared to similar sized hospitals that weren’t acquired.

“Consolidation and innovation seem to go together,” he said. “And we’re starting to see some good information that hospital consolidation leads to better quality.”

 [Image credit: BigStock Photos]

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